IMF adds liquidity line for countries with strong fundamentals

IMF adds liquidity line for countries with strong fundamentals

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Group of 20 member nations unanimously agree on Wednesday at the urging of the International Monetary Fund (IMF) and the World Bank to provide relief to the world's poorest nations by suspending debt service payments, starting May 1, so they can devote more resources to fighting the coronavirus pandemic. 

“We championed this debt initiative, and we’re committed to taking all possible steps to support the poor,” IMF managing director Kristalina Georgieva and World Bank Group president David Malpass said in a joint statement on Wednesday. 

“We call on private creditors, working through the Institute of International Finance, to participate in the initiative on comparable terms,” the G-20 said in its own statement. 

Late on Wednesday the IMF’s executive board approved the establishment of the short-term liquidity line (SLL) for member countries “with very strong policies and fundamentals in need of short-term moderate balance of payments support.” The credit line was created to strengthen COVID-19 response. 

These two measures are part of an effort being made by the IMF to fill gaps in the fund’s capacity to help vulnerable countries fight the disease that has sent the world into a lockdown that has spurred the worst recession since the Great Depression, while doing all it could with the resources it already has.  

The IMF is still trying to move forward in two other fronts. 

“We plan to triple our concessional lending. We are therefore urgently seeking US$18 billion in new loan resources for the Poverty Reduction and Growth Trust and will also likely need at least US$1.8 billion in subsidy resources,” said Georgieva during the G20 finance ministers and central bank governors meeting.  

We are also very keen to explore other avenues that would allow us now, in the urgency of the situation, to do more. There is an emerging consensus that existing SDRs could be deployed to help in developing countries,” Georgieva said a few hours later in the Spring Meetings opening press conference.  

Before the beginning of the Spring Meetings, the IMF was deploying $1 trillion in lending capacity to support countries and had doubled emergency financial assistance to $100 billion.  

The IMF has been recommending countries to act in the protection of lives and livelihoods. “We are telling everyone ‘do all you can’,” said Georgieva in the opening press conference of the 2020 Spring Meetings.  

But the fund says these lifelines are expensive.  

According to fiscal monitor estimates, discretionary policy actions with direct impact on the budget sum up to $3.3 trillion. In addition, loans and equity injections amount to $1.8 trillion. And finally, guarantees represent $2.7 trillion. The sum is about $8 trillion which corresponds to 9 and a half percent of world GDP,” said Vitor Gaspar, director of the fiscal affairs department of the IMF. 

The bank expects budget deficits and debts to increase in 2020. “Substantially more than in 2009 at the peak of the global financial crisis,” said Gaspar.   

Gross government debt all over the world will jump up by more than 13 percentage points of GDP to more than 96 percent of GDP, he said. 

The contrast across country groups is marked,” said Gaspar. “In advanced economies, the effort is about 17 percentage points of GDP, for emerging market economies about 9 percentage points and finally for low income developing countries, about 4 and a half percentage points of GDP.